Paying Down Debt

America's In Debt: What Can You Do About It?

Money

The more extra money you can find in your budget, the faster you can be debt-free. Step one in finding it is to use a spending plan (i.e., budget) to track where your money is going now. Then, see where you can save. When you do, don’t launch into a “dollar diet” and deprive yourself of the things you love. Deprivation doesn’t work. Instead, decide what really makes you happy, then try to spend less doing those things. Impossible? Not at all. Eating an appetizer at home, then splitting an entree at the restaurant is still eating out. The books at the library are no different than the books at Barnes & Noble. I drive an $85,000 Mercedes, but I bought it “pre-owned” for $20,000.

I could go on. Suffice it to say, no matter where your money’s going now, there are ways you can save without sacrificing quality of life. I know because I don’t just write about this stuff, I live it. With the exception of a small mortgage, I’ve been debt-free for nearly 20 years and have accumulated more than a million dollars in savings as a result. And nearly all of it has come from saving small amounts where I can and investing those savings sensibly.

So, if you’re looking for savings, here are the ABCs: A) Ignore what society and commercials are telling you. Make a list of what you really want or need; B) Stop spending on things that aren’t on it; C) Explore ways to save on things that are.

Method

Pick a system for destroying your debt and stick with it. When it comes to ranking debts for pay off, the method I advocate is called snowballing.

Snowballing means ranking your debts for payoff, then focusing every spare dollar on the first debt on your list till it’s dust. Then, using that old debt payment to help pay off the next debt on the list — and both those old payments to pay off the third debt on the list, and so on. You continue snowballing old payments until you’re debt-free. Then you invest the total of all your old debt payments every month and watch your wealth snowball as compound interest starts working for you rather than against you.

The bottom line? Destroying your debts is doable and it will absolutely change your life. Work it and it will work for you.

Stacy Johnson is the host of Money Talks News, a nationally syndicated consumer/personal finance news feature. His latest book, Life or Debt 2010, is in bookstores now.